The U.S. added 20,000 jobs in February, far below analyst expectations of 180,000 jobs.
The news unnerved investors, with the Dow Jones Industrial Average falling more than 200 points at the open, and the S&P 500 and Nasdaq also dropping.
Why is it happening?
For starters, the market doesn’t like surprises.
Despite the strong reaction from Wall Street, know that fear from one bad number shouldn’t control your portfolio decisions.
But still, concerns that economic growth could be heading for a slowdown are real.
The market has been on edge since the fourth quarter of 2018 as growth expectations are being revised, said Deva Panambur, a certified financial planner with Sarsi, LLC in West New York.
“The U.S. economy and U.S. corporate profits showed robust growth last year, helped primarily by tax cuts,” Panambur said. “But that was not expected to continue.”
He said there are other factors worrying the market: slowing world growth and especially in Europe.
Investors in financial markets hate uncertainty, and that’s leading to a lot of concern around these issues, said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.
“The reality is that most of these issues and/or challenges are long term and aren’t going to be ‘fixed’ overnight,” Lassus said. “That means speculation about what is happening will continue to generate headlines and lead to ongoing short-term volatility in the financial markets.”
But let’s put these things in perspective.
A lot of economic data points have seen an inflection point from strong growth to a slower pace of growth – that’s disappointing, but it is very different from a recession, said Andy Kapyrin, director of research at RegentAtlantic in Morristown.
He said he doesn’t believe a recession is in the cards for 2019.
“Markets are responding to a slowdown in the economy, but their day-to-day moves have been out of touch with a garden variety slowdown,” Kapyrin said. “The economic fundamentals remain robust – unemployment is still below 4 percent, consumer confidence remains at high levels and most factors that forecast the economy are pointing to a growing, if slower, 2019.”
What about your portfolio?
As the volatility continues, investors have to be careful. Stick to your long-term plan and don’t react to short-term moves in the market.
Panambur said a better approach is to construct a well-diversified portfolio that matches your risk profile, such as your willingness to tolerate volatility and your individual liquidity situation.
“A globally diversified portfolio gives one the confidence to invest through recessions and bear markets,” he said. “Over the long run, this approach can add value as it is more about the time in the market than timing the market.”
As the market does its roller coaster ride, there’s a good chance some asset classes have outperformed, or underperformed, leaving your investments out of whack with your goal allocations.
It could also be a time to lock in profits, Lassus said, even if paying taxes can be painful.
“Make sure your portfolio isn’t primarily invested in just a few asset classes and rebalance if it is needed,” she said. “Otherwise, take a deep breath and repeat after me: I am a long-term investor and short-term market volatility does not affect my long-term view.”
It’s also important to make sure you have cash reserves so it may be a good time to make sure you have enough, Lassus said.
Read more about how to rebalance your portfolio here.